2 Data Center Stocks on My Radar While the Market Struggles
All the names in this group have corrected hard, but there is still tremendous demand, especially for those that can provide cheaper power.
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Dip buyers made a very weak attempt on Monday to buy broken charts, but after an hour or so of trading, all the indexes are in negative territory, and only about 40% of stocks are in the green. Disclosure of a Warren Buffett buy of Alphabet (GOOGL) has that stock bouncing around 5% but it isn't doing much to help AI or technology stocks in general.
Biotechnology (IBB) continues to exhibit relative strength, gaining more than 1%, but small-caps (IWM) are lagging, down 0.5%, and pockets of speculative trading are narrow.
Quite a few stocks were pounded last week, and I'm sifting through the wreckage to find some names that are close to sold out and may have support. I recently mentioned PureCycle Technologies (PCT) as a name I like. On Friday, Stanley Druckenmiller disclosed in a 13F filing that his position in the stock is unchanged at 2.3 million shares. I am watching for opportunities to build my position, but I want to see better price action first.
A sector I am watching closely is data centers. All of the names in the group have corrected hard due to concerns about AI infrastructure spending and profitability. There is still tremendous demand for data centers, however, and especially those that can provide cheaper power.
I currently own two names in the group: Core Scientific (CORZ) and TeraWulf (WULF) .
I'm looking most closely at WULF right now. TeraWulf is a data center company that provides digital infrastructure. It has two primary businesses. It started as a bitcoin miner and a host for other mining companies, but has moved into High-Performance computing (HPC), AI Infrastructure, and data center hosting beyond bitcoin mining. The company states, "We develop and operate integrated, sustainably powered data centres for energy-efficient, advanced digital applications."
There are a number of larger data center enterprises, like CoreWeave (CRWV) , but TeraWulf has unique strategic advantages that make it attractive. One of the most significant is its access to cheap, clean energy. Its Lake Mariner site in upstate New York has access to both hydroelectric and nuclear power. The company states that it has "unparalleled access to low-cost, predominantly zero-carbon energy."
Another significant advantage of TeraWulf is its relationship with Alphabet (GOOGL) . Google is backing lease financing for large TeraWulf hosting clients, such as Fluidstack. Google is initially covering $1.8 billion in lease obligations, which are expected to grow to $3.2 billion.
Google also has an equity stake in TeraWulf through warrants, which are expected to increase its stake to 14% in the company. Finally, the company has a 10-year HPC colocation agreement valued at $3.7 billion, with extension options that could reach $8.7 billion. Google being both a strategic partner and an investor gives TeraWulf a tremendous advantage.
According to The Fly, TeraWulf's price target was recently raised to $23 from $22 at B. Riley. TeraWulf's Q3 results beat expectations with adjusted EBITDA of $18.1 million, despite a sharp stock decline. The results reflect strong progress at Lake Mariner and ongoing builds at WULF Den, CB-1, and CB-2. The company is increasing its annual HPC contract target to 250-500MW and advancing site acquisitions and financing plans, supporting its colocation growth and credit profile.
Technically, the entire data center group has recently been under tremendous pressure due to concerns about slow development, rising costs, and valuation concerns. WULF has fallen along with the sector, but has major technical support down to around $10.00. I am looking for some signs of support in this area. While I don't expect a straight-up bounce, there is a low-risk entry here, in my view, with a tight stop and a good opportunity to build a position incrementally.
The market continues to struggle, and I don't see any rush to add exposure, but I'm watching names such as PCT and WULF for signs of support.
At the time of publication, Rev Shark was long PCT, WULF and CORZ.
